Progress in Italy, Greece on debt sends US stock market up

Richard Drew / APTraders Fady Tanios (left) and Steven Marcus work on the floor of the New York Stock Exchange on Thursday. Stocks rose after an unexpected drop in unemployment claims and signs of progress in Europe's debt crisis. The gains came one day after the Dow Jones industrial average sank nearly 400 points.

NEW YORK (AP) — Signs of progress in Europe’s debt crisis and an unexpected drop in unemployment claims pushed stocks higher Thursday, a day after the stock market took its worst fall since the summer.

Greece named a new prime minister Thursday and Italy borrowed $6.8 billion at lower interest rates than analysts expected. Italy’s benchmark rate dropped below 7 percent after spiking above that level Wednesday. Investors were also relieved by talk that the economist Mario Monti is likely to replace Premier Silvio Berlusconi, who was seen as an obstacle to meaningful economic reforms. Italy’s president pledged that Berlusconi will step down soon.

The Dow Jones industrial average rose 112.92 points, or 1 percent, to close at 11,893.86. It plunged 389 points Wednesday after Italy’s borrowing rates soared and talks in Greece to name a new prime minister broke down. Traders have been concerned that debt troubles in Italy and Greece could create a liquidity crisis and lead to a global financial meltdown.

The Labor Department reported early Thursday that the number of people applying for unemployment benefits fell to 390,000 last week. That figure and the four-week average were the lowest since April.

Peter Cardillo, chief market economist at Rockwell Global Capital, called the drop in unemployment claims and the news from Europe encouraging. “It’s got the markets on the cheerful side,” he said.

Cardillo said he didn’t believe that the worst predictions about Europe’s debt crisis would come true. If things get bad enough, he said, the U.S. would have no choice but to come to the rescue. “If Italy was to fail, you can rest assured Europe would fail and the global economy would fail,” he said. “The U.S. is in a global economy. Whatever happens in one part of the globe is no longer isolated.”

In Greece, a day after a breakdown in power-sharing talks jolted financial markets, senior banker Lucas Papademos was named prime minister of a new coalition government. Papademos, a former vice president at the European Central Bank, is tasked with passing austerity measures being demanded by international lenders.